In India, agricultural income is exempt from income tax under Section 10(1) of the Income Tax Act, 1961. However, this exemption is subject to certain conditions and intricacies, especially when a farmer’s total income includes other sources that are taxable.
- Purely Agricultural Income: If a farmer’s income exceeding 1 crore is solely from agricultural activities (such as income from the cultivation of land, rent or revenue derived from agricultural land, etc.), then this income is not subject to tax.
- Agricultural Income and Other Income: If the farmer has a mix of agricultural and non-agricultural income (like salary, business income, capital gains, etc.), the tax calculation becomes more complex. In such cases, agricultural income is taken into account for rate purposes to compute tax liability on non-agricultural income. This means while the agricultural income itself is not taxed, it can affect the tax rate applied to the non-agricultural income.
- Above the Basic Exemption Limit: If the total income (including agricultural income) exceeds the basic exemption limit, the farmer’s non-agricultural income is taxed at the slab rates applicable, considering the agricultural income for rate purposes.
- Special Rates for High Income: For individuals with a total income exceeding Rs. 1 crore, a surcharge is applicable. For the financial year 2022-2023, if the total income exceeds Rs. 1 crore but is less than Rs. 2 crores, the surcharge is 15% of the income tax. This surcharge is applied on the tax calculated on non-agricultural income.
- Health and Education Cess: Additionally, a 4% Health and Education Cess is levied on the income tax plus surcharge.
- Example Calculation: If a farmer has non-agricultural income of Rs. 10 lakh and agricultural income of Rs. 90 lakh (totaling Rs. 1 crore), the tax would be calculated on Rs. 10 lakh as per the income tax slabs, and the agricultural income would be used to determine the rate of tax for the non-agricultural income. Surcharge and cess would be applicable as mentioned.
